NCUA Prepping New Fraud Risk Exam Tools

The NCUA told Credit Union Times this week that it is currently developing new exam procedures to improve the identification of fraud risk indicators, especially at small institutions.

The move comes after the regulator opted last year to reduce the amount of time it spends on-site conducting exams to 40 hours for qualified credit unions with assets fewer than $10 million and a CAMEL rating of three or better

Public Affairs Specialist John Fairbanks said the NCUA expects to roll out the new exam procedures in 2014. The move follows a series of credit union embezzlements, including the $10 million case against Taupa Lithuanian CU CEO Alex Spirikaitis.

“We believe an enhanced examination procedure designed to focus in on high fraud risk areas combined with training on the new procedures is a key step to mitigate risk,” Fairbanks said.

The NCUA is in the process of re-structuring its exam approach and tailoring exams according to the varying risk characteristics of credit unions based on size and sophistication, including enhanced fraud detection techniques in smaller institutions.

“Staff training is currently underway on the enhanced exam procedures for small credit unions,” Fairbanks said. “Those procedures include enhanced procedures to help detect fraud earlier. The exam process is not a fraud exam but with enhanced procedures, we expect to improve early detection. All staff will be trained on these procedures and they can be applied in all situations where fraud is a concern, but are especially targeted for small institutions.”

The NCUA already has procedures in place to continuously improve the monitoring and exam process, he said.

“We learn from every incidence of fraud and make appropriate adjustments,” the agency spokesman added. “The NCUA continuously re-evaluates our ongoing monitoring to include enhanced analysis to identify irregularities where appropriate.

“We also moved to an annual exam cycle, which puts examiners on-site at federal credit unions more frequently. This will also help to reduce the size of fraud and possibly detect fraud earlier.”

The NCUA is also evaluating approaches toward establishing a specialist team for the most significant fraud risks, the agency said.

“In the meantime, it’s important to remember that local oversight is important,” Fairbanks said. “Management, directors and supervisory committee members can take steps to deter and detect fraud.”

For example, the NCUA’s Office of Small Credit Union Initiatives will present a webinar on “Deterring Employee Fraud” at 2 p.m. EST on Thursday, Nov. 14.

Presenters including OSCUI staff along with Joni Lovingood, a senior consultant with CUNA Mutual Group, and Scott Butterfield of Your Credit Union Partner, will cover topics such as why employee fraud occurs, its warning signs and impact on the credit union.

“Using real-world case studies, Lovingood and Butterfield will also explain how a well-trained, active supervisory committee and strong internal controls are effective means of deterring employee fraud,” the NCUA said Tuesday in its announcement.